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How affordable housing in big cities is hurt by urban sprawl: Study

America is breaking ground on new homes at a steady clip, yet at a pace still below pre-recession peaks — and not enough to address a housing crisis in big coastal cities, according to a new report.

Data released on Wednesday by Apartment List revealed that the total number of permitted U.S. housing units checked in at 1.32 million in 2018. That represented a significant rebound from the fallow post-recession years, but still 38.2% below the pre-recession peak.

In 2015, multi-family permits eclipsed their peak before the recession hit, and construction has continued to grow since. In contrast to the pre-recession numbers, though, the current recovery has been driven by multi-family permits rather than single-family development.

Multi-family units are taking the lion’s share of new construction in major markets like New York, Boston and San Francisco, and are doing little to alleviate an affordable housing crunch.

“Notably, these metros have also suffered from a severe lack of affordability that has sparked fierce debate about how to maintain inclusivity in the superstar cities that drive the modern economy,” the report said.

It suggests the growing problem of affordability is mostly confined to America’s major cities. Meanwhile, smaller metro areas have used an urban sprawl to continue to provide ample housing stock for residents, Apartment List noted.

“A lot of these trends are continuing despite the fact that the world is changing,” said Apartment List’s Chief Economist Igor Popov. “I continue to be surprised just how strong the recovery in the multi-family industry has been.”

Sprawl is working in Sun Belt

According to Popov, the average size of multi-family units has doubled since 1990, meaning that apartment buildings are only getting bigger.

Still, big cities like San Francisco and New York are experiencing a “spatial mismatch,” where there are more jobs available than job seekers, because of a lack of affordable housing stock.

Apartment List’s study showed that the largest rise in multi-family units were in places that already had a large stock — and New York City saw the biggest year-over-year jump. The Big Apple, second only to San Francisco in frothy housing costs, has been the epicenter of surging rent prices that recently hit all-time highs.

Yet the opposite problem exists in quick growing metropolitan areas, many of which are concentrated in cities located in Sun Belt states, like Atlanta, Phoenix, Dallas and Charlotte.

Much of the construction in these cities continues to be single-family units, but they are meeting housing demand, while also succeeding economically.

“It seems that the metros most effectively meeting the demand for new housing are still primarily doing so by continuing to sprawl, despite an increasing demand for dense, walkable neighborhoods that prioritize sustainability,” wrote housing economist Chris Salviati in Apartment List’s report.

Building on urban sprawl, and continuing to build mostly single-family units flies in the face of conventional housing policy wisdom. Much of current housing regulation has relied on “upzoning,” or eliminating regulations that stand in the way of building multi-family units.

For example, the city of Minneapolis and all of Oregon state recently passed laws that eliminated zoning regulations. Those regions will allow for the building of large apartment buildings — but may also lead to significantly more 2-4 unit buildings, which currently represent 12% of the housing stock in the country, but only 3% of new construction.

So, as some cities have been successful continuing to sprawl while others consider various solutions to solve a rising housing crisis, it raises the question of where housing development will go from here. It might have to do with the depth and severity of America’s next downturn.

“If you’re adding more jobs than houses in large coastal metros and you’re adding more houses than jobs in smaller heartland metros, something has to give,” said Popov.

“The question that naturally jumps off the page is, will the next recession actually spur some migration away from these larger, more expensive metros, or will it happen in such a way that people feel they need to double down on the job opportunities that are there?” he asked.

Calder McHugh is an Associate Editor at Yahoo Finance. Follow him on Twitter: @Calder_McHugh.

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